F5 CH 03

CHAPTER Three
Organizational
Strategy
1
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved
What Would You
Do?
You are in charge of
IKEA Design Company…
❖ The furniture industry is
highly fragmented and IKEA
has turned this into
opportunities
❖ Scandinavian strategies
include low prices and
convenient packaging
Will the strategies work on a global basis?

How can IKEA identify opportunities and
threats, and select a competitive advantage
strategy?
2
Basics of
Organizational
Strategy
After reading the next two
sections, you should be able to:
1. explain the components of sustainable

competitive
advantage and why it is important.
2. describe the steps involved in the
strategy-making process.
3
Sustainable
Competitive
Advantage
The assets, capabilities, processes,

Resources information, and knowledge that the
organization controls
Competitive Providing greater value for customers

Advantage than competitors can
Sustainable A competitive advantage that other

Competitive companies have tried unsuccessfully
Advantage to duplicate
4
1 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved
Requirements for
Sustainable Competitive
Advantage
Valuable Rare
Resources Resources
Sustainable
Competitive
Advantage
Imperfectly Non-
Imitable Substitutable
Resources Resources
Adapted from Exhibit 8.1
5
Strategy-Making
Process
1 2 3
Choose Conduct a Assess need
strategic situational for
alternatives analysis strategic change
6
Assessing the
Need for Strategic
Change
❖ Competitive Inertia
❖a reluctance to change
strategies or competitive
practices that have been
successful
❖ Strategic Dissonance
discrepancy between top
management’s intended
strategy and the actual
strategy implemented by
lower management 7
2.1 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved
What Really Works
Strategy Making for Firms
Strategy Making for Big Firms
Strategic Planning & Profits for Big Companies
10% 20% 30% 40% 50% 60% 70% 80% 90%

100%
probability of success
72%
Strategic Planning & Growth for Big Companies

10% 20% 30% 40% 50% 60% 70% 80% 90%
100%
probability of success 75%
8
What Really Works
Strategy Making for Firms
Strategy Making for Small Firms
Strategic Planning & Profits for Small Companies

10% 20% 30% 40% 50% 60% 70% 80% 90%
100%
probability of success
61%
Strategic Planning & Growth for Big Companies
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
probability of success 62%
9
Situational Analysis
SS Strengths
Strengths
Internal
W
W Weaknesses
Weaknesses
O
O Opportunities
Opportunities
External
TT Threats
Threats
10
Situational Analysis
I Strengths
N
T
E • Distinctive
R Competence
N E Opportunities
A • Core Capability X
L T
E • Environmental
Weaknesses Scanning
R
N • Strategic Groups
A
L
Threats
Adapted from Exhibit 8.2 11
Strategic Groups
❖ Core Firms
❖ central companies in
a
strategic group
❖ Secondary Firms
❖ firms that follow
related, but
somewhat different,
strategies than do
core firms
12
Choosing Strategic
Alternatives
❖ Risk-Avoiding Strategy
❖ protect a competitive advantage
❖ Risk-Seeking Strategy
❖ create a sustainable competitive
advantage
❖ Strategic Reference Points
❖ targets used by managers to
determine if the firm has a
sustained competitive advantage
13
Strategic
Reference Points
14
Corporate, Industry, and
Firm-Level Strategies
After reading the next three
sections, you should be able to:
3. explain the different kinds of corporate-

level strategies.
4. describe the different kinds of industry-
level strategies.
5. explain the components and kinds of
firm-level strategies.
15
Corporate-Level Strategies
Portfolio Grand
Strategy Strategies
The overall organizational strategy

Corporate-Level that addresses the question “What
Strategy business(es) are we in or should we
be in?”
16
Portfolio Strategy
❖ Portfolio Strategy
❖ Reduce risk by diversification
❖ Acquisitions
❖ the company purchases
another company
❖ Unrelated diversification
❖ creating or acquiring
companies in completely
unrelated businesses
❖ Boston Consulting Group
(BCG Matrix)
17
BCG Matrix
Market Growth Rate
High Question Stars

Marks
Low Dogs Cash Cows
Small Large
Relative Market Share
18
BCG Matrix
Question companies with a small share
Marks of a fast-growing market
companies with a large share

Stars
of a fast-growing market
companies with a small share

Dogs
of a slow-growing market
Cash companies with a large share

Cows of a slow-growing market
19
BCG Matrix
Company D
Company A
Market Growth Rate

Question Marks Stars
High Question Marks
Company C
Company B
 
 Company E
Company G
Low Dogs Cash Cows

Company H Company F

Small Large
Relative Market Share
Diversification
Strategies
High
Risk
Low
Single
Related Unrelated
Busines
Diversification Diversification
s
Grand Strategies
focuses on increasing profits,

Growth
revenues, market share, or number
Strategy of places to do business
focuses on improving the way in which
Stability
the company sells the same products
Strategy or services to the same customers
focuses on turning around very poor
Retrenchment
company performance by shrinking
Strategy the size or scope of the business
22
Industry-Level
Strategies
How should we compete in this
industry?
Five
Industry Forces Positioning
Strategies
Adaptive
Strategies
23
Five Industry
Forces
Threats of
New Entrants
Bargaining Character Bargaining

Power of of Power of
Suppliers Rivalry Buyers
Threat of
Substitutes

Positioning
Strategies
Cost Leadership
Differentiation
Focus Strategy
25
Adaptive
Strategies
Defenders
Defenders Prospectors
Prospectors
 seek
seek moderate
moderate growth
growth  seek
seek fast
fast growth
growth
 retain
retain customers
customers  emphasize
emphasize riskrisk taking
taking
innovation
innovation
Analyzers Reactors
Reactors
Analyzers
 blend  use
use an
an inconsistent
inconsistent
blend of
of defender
defender &&
prospector strategy
strategy
prospector strategies
strategies
 imitate  respond
respond to to changes
changes
imitate other’s
other’s
successes
successes
26
Firm-Level
Strategies
How should we compete
against a particular firm?
Basics of
Direct Strategic Moves
Competition in
Direct
Competition
27
Direct Competition
STRATEGIC
DIRECT MOVES OF
COMPETITION DIRECT
COMPETITION
Market
Attack
commonality
Resource
Response
similarity
28
Direct Competition
Market Commodity
High
II I
III IV
Low
Low High
Resource Similarity
Strategic Moves of
Direct Competition
❖ Attack
❖ a competitive move
❖ designed to reduce a
rival’s market share
or profits
❖ Response
❖ a countermove
❖ designed to protect a
company’s
market share or profits
30
Strategic Moves of
Direct Competition
Interfirm Rivalry:
Competitor Analysis Action & Response
Strong Less
Market Likelihood of
Commonality an Attack
Weak Market Greater Likelihood of
Commonality an Attack
Strong Resource Less Likelihood of
Commonality a Response
Low Resource Greater Likelihood of
Commonality a Response

F5 CH 03

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CHAPTER Three

Will the strategies work on a global basis?

1. explain the components of sustainable

The assets, capabilities, processes,

Competitive Providing greater value for customers

Sustainable A competitive advantage that other

Strategic Planning & Profits for Big Companies

10% 20% 30% 40% 50% 60% 70% 80% 90%

Strategic Planning & Growth for Big Companies

Strategy Making for Small Firms

Strategic Planning & Profits for Small Companies

3. explain the different kinds of corporate-

The overall organizational strategy

High Question Stars

Low Dogs Cash Cows

companies with a large share

companies with a small share

Cash companies with a large share

Low Dogs Cash Cows

focuses on increasing profits,

Bargaining Character Bargaining

Adapted from Exhibit 8.7 24

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